How much life insurance cover do I need?
Key takeaways
Life insurance provides a tax-free lump sum designed to support income replacement, clear outstanding debts, and provide mortgage cover if you die during the policy term.
The amount of cover you need should be based on a financial calculation – considering required income replacement (e.g. years of lost income), total outstanding debts, mortgage cover, childcare costs, education funding, and ongoing household expenses.
Your protection needs evolve over time as income, family circumstances, and outstanding debts change – so reviewing your level of cover regularly is essential.
Life insurance is not usually a legal requirement for a mortgage, but arranging sufficient mortgage cover for a joint mortgage helps ensure the surviving borrower can repay the loan.
Do I need life insurance?
You need life insurance if someone would face financial difficulty – such as loss of income, unpaid debts, mortgage repayments or funeral costs – if you were no longer there.
You would typically want to consider it if:
Someone relies on your income
You have a partner and/or children
You have a mortgage
You have outstanding debts
You want to cover funeral costs
If no one depends on you financially and you have minimal debts or sufficient savings, life insurance may be less of a priority.
What do I want my life insurance to cover?
You generally want your life insurance payout to cover the essential financial needs of your loved ones if you were no longer around. This includes protecting dependants, clearing liabilities, and funding future expenses so your family remains financially secure.
There are different types of life insurance to suit various needs and budgets. Whole-of-life insurance offers a guaranteed payout whenever you pass away. Term life insurance is cheaper as it will only provide cover for a set number of years (the term).
Looking after children
If you have dependants, your policy should provide income replacement to maintain their standard of living.
Costs to consider:
Day-to-day living expenses (food, utilities, clothing)
Childcare – according to
the average cost of nursery fees for full-time places in the UK is £238.95 per week
Education support –
university tuition fees in England
are currently up to £11,440 per year, plus living costs
According to the Child Poverty Action Group, the cost of raising a child to age 18 is typically £250,000 for couples and £290,000 for a lone parent.
Example: A life insurance policy with a £300,000 payout would cover the cost of a lone parent raising a child.
Paying off a mortgage
Providing mortgage cover ensures your family can remain in the family home without worrying about repayments. Some people align their cover amount and term directly with their repayment mortgage.
Example: If your outstanding mortgage balance is £200,000, your life insurance policy should be at least this amount.
Clearing outstanding debts
Life insurance can prevent outstanding debts, such as loans, credit cards, car finance and overdrafts, becoming a burden for your family or the beneficiaries of your will.
Example: £12,000 loan + £5,000 credit card = £17,000 debt cover needed
Covering everyday family expenses
Beyond specific debts, you may want a financial buffer to help your family adjust. This can give breathing space while major financial adjustments are made.
Example: £2,000 monthly household costs × 24 months = £48,000 transition fund
Funeral costs
The average UK funeral now costs £5,140 according to SunLife's Cost of Dying Report 2026.
Calculating cover
The total amount of cover you will need will depend on your income, family size, mortgage balance, and future goals.
To determine how much cover you need, you can use MoneySuperMarket’s life insurance calculator.
How do I calculate how much life insurance I need?
To calculate how much life insurance you need, you should work through three core questions:
What financial responsibilities would need covering? (dependants, debts, mortgage, funeral).
How much income would need replacing – and for how long?.
How long do you actually need the cover to last? (i.e. until the mortgage is paid off or children reach 18).
The DIME formula provides a structured approach: Debt (excluding mortgage), Income (years needed), Mortgage, and Education.
You can then subtract existing savings and investments from your final DIME total.
💡 Top tip: Alternatively, a common rule of thumb is to ensure the policy is at least 10 times your annual income.
How long do I want to be covered for?
The length of time your life insurance should cover you depends on your personal circumstances and financial commitments.
Typically, it’s wise to have cover in place for as long as you have significant financial responsibilities - such as until your mortgage is paid off, your children are financially independent, or other debts are cleared.
For many people, this means taking out a term life policy that lasts 15, 20, or 30 years.
However, if you want to provide lifelong protection, for example to cover funeral costs or inheritance tax, a whole-of-life policy may be more suitable.
What are the different types of life insurance?
There are several types of life insurance available. The right choice depends on what you’re protecting, how long you need cover for, and your budget.
Level term life insurance
How it works: Term life insurance policies last for a set number of years. If you die within this term, your loved ones receive a lump sum - how much this will be depends on your level of cover. With level term insurance, the payout amount remains the same regardless of how long you've been paying into the policy.
Best suited for:
Income replacement for dependants
Protecting young families
Covering interest-only mortgages
Providing a fixed financial safety net
Example: £400,000 level term over 25 years to replace income while children are growing up.
Cost positioning: Mid-range among term policies. More expensive than decreasing term because the payout stays the same – but significantly cheaper than whole-of-life cover.
Decreasing term life insurance
How it works: In decreasing term cover, the cash lump sum amount decreases over time. This type of term policy is typically a cheaper option and is often used to cover a repayment mortgage. As you pay off more of your mortgage, your family will need less to settle the debt if you die.
Best suited for:
Repayment mortgage protection
Situations where liabilities reduce each year
Budget-conscious borrowers focused purely on debt cover
Example: £250,000 decreasing term over 25 years aligned to a repayment mortgage.
Cost positioning: Usually the cheapest form of life insurance, because the insurer’s potential payout reduces each year.
Whole-of-life insurance
How it works: Whole-of-life insurance is a type of life insurance policy that guarantees a payout to your loved ones whenever you die, as long as you continue to pay the life insurance premiums. Unlike term life insurance, which only covers you for a set period, whole of life cover lasts for the rest of your life. It is sometimes called ‘life assurance’.
Best suited for:
Funeral cost planning
Inheritance tax planning
Leaving a guaranteed legacy
Covering lifelong financial dependants
Example: £200,000 whole-of-life policy to cover funeral costs and leave a fixed inheritance.
Cost positioning: Significantly more expensive than term insurance because a payout is guaranteed. Premiums are based on age, health, and whether they are fixed or reviewable.
Family income benefit
How it works: Instead of a lump sum, this term policy pays a regular monthly or annual income if you die during the term. Payments continue until the policy end date.
Best suited for:
Replacing monthly salary
Covering ongoing household bills
Families who prefer structured income over a lump sum
Example: £2,500 per month payable until the end of a 20-year term if death occurs.
Cost positioning: Often cheaper than level term for the same headline ‘cover amount’, because the total paid out depends on when a claim happens.
Joint vs. single policies
Married or cohabiting couples can either buy two single life insurance policies or a joint life insurance policy.
Single life policy
Covers one person and pays out once on their death.
Best suited for:
Couples wanting separate protection
Families who would need two payouts if both partners died at different times
Greater flexibility (policy continues if one partner dies)
Joint life policy
A joint life policy covers two people under one policy and usually pays out once on first death, then ends.
Best suited for:
Couples primarily protecting a shared mortgage
Budget-sensitive households
Cost positioning: A joint policy is typically cheaper than two separate single policies – but may offer less long-term value because it only pays out once.
Do I need cover for critical illness?
You need cover for critical illness if money would be a problem or if you were diagnosed with something major and couldn’t work for a while.
A serious illness can mean time off work, reduced income, or extra costs such as travel to appointments or adapting your home.
Critical illness cover pays out a tax‑free lump sum if you’re diagnosed with one of the conditions listed in the policy, giving you a financial buffer at a time when you may need it most. It is often sold alongside life insurance.
If you don’t have dependants (i.e. you are single and childfree), critical illness might be a more suitable protection policy than life insurance.
How much cover do I need if I am over 50?
When you’re over 50, the right amount of life insurance isn’t about age — it’s about what financial responsibilities you’d want covered if you died. The simplest way to work it out is to look at who depends on you financially and what costs you’d want your policy to take care of.
Typical life insurance needs by stages
It’s a good idea to check your life insurance whenever something big in your life changes. As your responsibilities shift, the amount of cover you need can shift too. Key moments that usually trigger a review include:
Getting married or entering a civil partnership.
Having a child or adopting.
Buying a home or increasing your mortgage.
Divorcing or separating.
Starting a new job or experiencing a major income change.
Receiving an inheritance or large windfall.
How can I find the best life insurance cover?.
To find the best life insurance cover, start by assessing how much protection you need based on your financial responsibilities, such as a mortgage, debts, and dependants.
Choose the right type of policy - such as term, whole of life, or family income benefit - and get a life insurance quote from multiple insurers, considering not just price but also policy features and exclusions.
How much your life insurance costs will largely depend on:
The amount of cover.
The term length.
Check the insurer’s reputation and claims history, and consider additional options like critical illness cover if relevant. Placing your policy in trust can speed up the payout and reduce inheritance tax.
Frequently asked questions
Can I cash in my life insurance policy?
Investment‑linked whole‑of‑life insurance is designed to last for your entire life and often includes an investment component. Part of your premium goes towards life cover, and part is invested. Over time, this can build up a cash value, which means you may be able to surrender (cash in) the policy before you die. However, surrender values can be unpredictable.
You usually can’t cash in term life insurance policies and there’s no surrender value. If the term ends and you’re still alive, the policy simply expires
How do you choose how much life insurance you need?
Determining the right amount of life insurance cover is essential to avoid being underinsured or overpaying for unnecessary cover.
The amount of life insurance cover you need depends on your personal financial situation and the needs of your dependants.
Here’s how to work it out step-by-step:
Start with your mortgage:
When it comes to your mortgage, aligning your life insurance with the value and term of your mortgage can prevent over-insuring. For a repayment mortgage, our guide 'Do I need life insurance for my mortgage?' can offer detailed insights. Those with an interest-only mortgage should be mindful of inflation and interest rate fluctuations when determining their cover needs.
Add other debts
You should also consider your outstanding debts (like loans or credit cards), plus enough to cover future living expenses for your family, such as childcare, education, and household bills.
Decide how long your family needs income support
A common rule of thumb is to aim for 5–10 times your annual income, which is based on typical income replacement ratios used in financial planning.
Funeral costs can also be covered by life insurance. Depending on your concerns about inflation, you might opt for an index-linked or whole-of-life policy to ensure these expenses are met.
To determine how much cover you need, you can use MoneySuperMarket’s life insurance calculator.
What’s the minimum amount of life insurance you need?
There’s no legal minimum amount of life insurance you must buy — and some people choose not to have any at all. But if you want a realistic baseline that protects your family from immediate financial shock, most advisers suggest starting with enough cover to clear your mortgage and any major debts.
Do you need life insurance to get a mortgage?
You don’t need life insurance to be approved for a mortgage — lenders won’t insist on it as a condition of borrowing. But many people choose to take out cover because it protects their family from being left with the mortgage if they died unexpectedly. A policy that pays off the outstanding balance can mean your partner or children can stay in the home without financial strain at an already difficult time.
Life insurance is one of the most common forms of mortgage protection, alongside options like critical illness cover and income protection. If you’re weighing up what you actually need, it’s worth looking at guidance on mortgage‑related life insurance to help you decide how much cover is appropriate for your situation.
Is it cheaper to pay life insurance annually?
Most people pay for life insurance monthly because it spreads the cost, but many insurers will let you pay quarterly, twice a year or annually. Paying annually is often cheaper because it avoids something called modal loading. This is an extra charge added to monthly premiums to cover the insurer’s admin costs and the fact they’re effectively giving you credit by letting you pay in instalments.
In practice, modal loading means monthly premiums can work out 5–10% more expensive than paying for the whole year upfront.
What is the average life insurance payout?
Insurers don’t publish a single national average payout figure, but Legal & General paid out an average of £41,457 per claim in 2024.
According to the Association of British Insurers (ABI), insurers paid out £5.32 billion in 2024 for protection claims across individual life insurance, income protection and critical illness policies.
Do stay at home parents need life insurance?
A stay‑at‑home parent may not earn a salary, but the work they do has real financial value. If they died unexpectedly, the surviving partner might need to pay for childcare, household support, transport, or take time off work — all of which can be expensive.
So instead of basing cover on income, you base it on the cost of replacing the services they provide – i.e. childcare, cooking, cleaning, laundry etc.
Author
Rachel Ditchburn
Former Senior Commercial Manager
Rachel is a former Senior Commercial Manager at MoneySuperMarket, where she oversaw the Protection, Pet and Leisure Insurance channels. Outside of work, Rachel is a keen cook and enjoys live music,...
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Emma Lunn
Personal finance expert
Emma has written about personal finance for almost 20 years, with a career spanning several recessions and their inevitable consequences. Emma’s main focus is helping people learn to manage their...
